Facts everyone should know about bankruptcy

bankrupt coupleIn a debt crisis? Learn about bankruptcy and debt agreements and the light at the end of the tunnel.

Bankruptcy is a serious decision and the last resort for people who are dealing with debt that has gotten out of control. If you are considering declaring bankruptcy or entering into a debt agreement, you need to consider all other alternatives first and speak to a financial counsellor to ensure it's the best decision for you.

In the guide below, we'll show you the basics of bankruptcy and debt agreements and what the consequences are to help you make a more informed decision.

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What is bankruptcy?

Bankruptcy is the legal state that absolves you from paying your debts. You can apply for bankruptcy in two ways; the first is through a debtor's petition which is where you apply for bankruptcy yourself; the second involves you being forced into bankruptcy through the courts, which is called a sequestration order. In both cases, a trustee is appointed to manage your finances. A trustee can sell certain types of assets you own, take any income you earn over a certain amount and investigate your financial affairs.

Once you declare bankruptcy you’re released from your debts. If you have a secured debt like a mortgage on a property, the asset can be sold to repay your debts. If you have an unsecured debt like a credit card or personal loan, your assets such as your house or car cannot be repossessed.

Declaration of Intention

A Declaration of Intention (DOI) gives you 21 days to decide whether you want to declare yourself bankrupt, or take out a debt agreement or PIA. Creditors with unsecured debts are prevented from taking action during the DOI period.

  • Your creditors are alerted when you lodge a declaration of intention and they’re provided with information about your finances
  • A DOI is not an act of bankruptcy, your name is not recorded on the National Personal Insolvency Index
  • At the end of the 21-day period, if you haven’t entered into a formal arrangement, creditors can take you to court and force you into bankruptcy.

Bankruptcy and your credit file

The laws about bankruptcy and reporting do change. Keep an eye on government sites like afsa.gov.au — the Australian Financial Security Authority (AFSA) is the regulatory body for insolvency.

The most current information states that bankruptcy stays on your credit file for at least two years from the date of discharge before it’s deleted.

Type of default: Stays on credit file for:
  • 5 years from the date you officially became bankrupt, or
  • 2 years from the date your bankruptcy was discharged – whichever is later.
Court judgements
  • 5 years from the date the court judgment was made.

How to declare bankruptcy

Before you declare bankruptcy it's important to speak to a financial counsellor for free personal advice about dealing your debt. You can consider trying to organise payment options with your creditors or organising a budget with the help of a financial counsellor. If your other options are exhausted you may decide to enter bankruptcy, or you may be made bankrupt by the courts.

The process depends on whether you have issued a debtor petition or you have received a sequestration order.

  • Voluntary bankruptcy: Debtor’s petition. You need to complete a debtor's petition, which is an application to become bankrupt and includes a signed acknowledgement of prescribed information and include a statement of your affairs. You'll need to complete and lodge the debtor's petition with the Official Receiver within 28 days of signing the forms. To be eligible you need to have an Australian connection, such as usually residing in Australia, the forms need to be filled out accurately and you need to provide ID. You can get the forms from the AFSA website.
  • Involuntary bankruptcy: sequestration order. If you owe more than $5,000 to a creditor you can be asked to attend court and be forced into bankruptcy. A creditor can issue a sequestration order if they’ve gotten a court judgement against you in the previous six years. You are generally given a 21-day period to pay your debts before the court hearing and have a chance to be heard by a judge before the actual court date. If you can’t pay your debts in this period, the court will issue a sequestration order declaring you bankrupt and a trustee will be appointed to manage your case.

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When does bankruptcy end?

The end of bankruptcy is when you are discharged, which is where you are no longer consider bankrupt. But in reality, the effects of bankruptcy last long after you’ve been discharged. Your name will be recorded on the National Personal Insolvency Index (NPII) forever. In terms of being discharged and your bankruptcy being removed from your credit file, the following applies:

  • Debtors petition bankrupts. If you became bankrupt by presenting your own petition, you'll be due for discharge three years and one day after filing your petition with the AFSA.
  • Sequestration order bankrupts. If you were made bankrupt by an order of the court, you are due for discharge three years and one day after your complete statement of affairs was accepted by the AFSA.
  • Exceptions for all bankrupts. In some cases, bankruptcy can be extended to five or eight years if your trustee lodges an objection to your discharge.

Debt agreement

A debt agreement is an agreement between yourself and your creditors that you will repay your debts. It essentially freezes interest on your accounts and gives you time to get your debts under control. While this may seem like a convenient option, it's important to note that a debt agreement is an act of bankruptcy and will be noted as such on your credit file.

Think about the following if you’re considering a debt agreement.

  • Not everyone can get a debt agreement. There are income limits and other eligibility requirements.
  • Secured creditors may still claim debts.
  • A debt agreement ends when you pay out the contract or if the agreement is terminated by the courts or creditors.

Your name is permanently recorded on the NPII and the debt agreement is listed on your credit file for a period of two years from when the agreement is discharged.

Debt agreement and credit file history

Type of default: Stays on credit file for:
A debt agreement
  • 5 years from the date the agreement was entered into, or
  • 2 years from the date the agreement was:
    • Terminated,
    • Or the agreement was declared void.

Personal Insolvency Agreement (PIA)

Any insolvent Australian resident can apply for a Personal Insolvency Agreement (PIA). This is not like a debt agreement, which has income and debt eligibility requirements.. But like a debt agreement, when you appoint a trustee to manage your financial affairs, you’re committing an act of bankruptcy and this can be used in formal proceeding to make you officially bankrupt. The listing is recorded on your credit file and your name is permanently recorded on the NPII.

Personal Insolvency Agreements and credit file history

Type of default: Stays on credit file for:
Personal Insolvency Agreement.
  • 5 years from the date the agreement was entered into, or
  • 2 years from the date the agreement was terminated.

Informal debt agreements

An informal debt agreement is an arrangement to pay back a lender outside the terms and conditions of your original contract. It doesn’t involve court and you’re not declaring yourself bankrupt. It’s important to seek financial advice if you want to enter into an informal debt agreement. Some companies specialise in helping you set up and run informal debt agreements. Fox Symes offer informal debt agreement services and can work with you to get your debts back under control.

Type of default: Stays on credit file for:
Consumer credit payment default, i.e failing to pay credit card or person loan by more than 60 days.
  • 5 years from the date the creditor listed the default to the credit reporting body (CRB).
If you’ve defaulted on a payment and you’ve made arrangements with the lender to pay back the debt in a manner different to the original terms and conditions.
  • 2 years from the date the creditor listed the default to the CBR.

Life after bankruptcy

The declaration of bankruptcy can have serious consequences for the rest of your life.

  • Diminished chances of obtaining credit even after the listing has been removed from your credit file.
  • Diminished employment opportunities. You are not able to hold certain positions or jobs both while you’re insolvent and after you’ve been discharged from bankruptcy.
  • Your name is permanently recorded on the National Personal Insolvency Index (NPII) and can be viewed by anyone for a fee.

Once you’ve been discharged from bankruptcy, you’re able to work in most professions and travel freely outside Australia.

"How can I get a personal loan, credit card or home loan after bankruptcy?"

There is such a thing as life after bankruptcy. You have limited options for credit while you are bankrupt, but after you are discharged your options open up significantly. If you're considering your bankrupt loan options you can learn about them here.

Have more questions about bankruptcy?

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10 Responses

  1. Default Gravatar
    PhilipMay 3, 2018

    Hi, can someone call please? Just trying to get my head around out of bankruptcy. November the 7th 2017 thinking this was the end after going through something so horrific, a victim of identity theft and cyber fraud. Now to find out that the black marks won’t be gone till 2022. Phil 0426054952

    • Default Gravatar
      ArnoldMay 5, 2018

      Hi Philip,

      Thanks for your inquiry

      Please note that finder is a comparison website. We are not allowed to call our users. We provide general information through chat and email only. Regarding your bankruptcy, it will remain on your credit file 5 years from the date you officially became bankrupt or 2 years from the date your bankruptcy was discharged – whichever is later.

      If you would like free financial counselling you can call the Financial Counsellors hotline on 1800 007 007. It is open from 9:30am to 4pm, Monday to Friday.

      Hope this information helps


  2. Default Gravatar
    CarolynJuly 21, 2017

    I went Bankrupt over 10 years ago, will this still affect an application for a credit card?

    • finder Customer Care
      JhezelynJuly 22, 2017Staff

      Hi Carolyn,

      Thanks for your comment.

      The details of your bankruptcy will still be on your credit file, which could affect your ability to get approved for a credit card or loan at this time. If you want to apply for a credit card, it could take time before a lender is willing to approve your credit card application. It’s important to look for cards that have reasonable eligibility requirements for your circumstances.

      Here’s a page that will help you on how to repair your credit file after bankruptcy.


  3. Default Gravatar
    GregJune 28, 2016

    Can you work for someone selling general insurance if you are a bankrupt currently

    • finder Customer Care
      ElizabethJune 28, 2016Staff

      Hi Greg,

      The Bankruptcy Act doesn’t restrict you from working in a certain profession, but certain industry associations or licensing authorities can impose restrictions or conditions on you. According to the Australia Financial Security Authority’s website there are no restrictions listed for those selling general insurance but you may want to confirm this with the relevant industry association.

      I hope this helps,


  4. Default Gravatar
    wezleyJune 10, 2016

    Can a trustee freeze your account without letting you know first.

    • finder Customer Care
      ElizabethJune 14, 2016Staff

      Hi Wezley,

      If your account was just used to predominantly receive your personal income, and it doesn’t exceed the balance limit (usually around $2,000) then you should get in contact with your trustee to discuss why it was frozen. If you aren’t happy with the outcome of the discussion you can contact the Australian Financial Security Authority directly to rectify the situation.

      Hope this helps,


  5. Default Gravatar
    IrineDecember 5, 2015

    I went voluntarily into bankruptcy, but the bank changed my trustee. This Trustee locked my account which I use for Age pension. As a result I am not able to access to my pension – the only life-supporting income I have. What can I do? Can I claim that his Trustee acts unlawful and ask to change him?

    • finder Customer Care
      ElizabethDecember 7, 2015Staff

      Hi Irine,

      According to the Australian Financial Security Authority (AFSA), the first step is to talk to your trustee and explain the situation in order to have it rectified. You are entitled to a certain amount of income under the bankruptcy act and the trustee cannot freeze your account without reason. If you do not get anywhere by speaking directly to your trustee, you can complain directly to the AFSA by calling them on 1300 364 785.

      I hope the situation is rectified for you.



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